Uber’s Next Billion-Dollar Financing Could Be A Convertible Debt Round

On-demand transportation company Uber could put more money under its already overstuffed mattress*, as the company is seeking to raise an addition $1 billion in funding. Instead of offering equity to investors that participate, however, the company might structure the offering as a convertible debt round.

Uber’s efforts to seek new financing was first reported by the Financial Times yesterday, while Re/code reported the valuation at $25 billion.

Our sources have confirmed Uber is in preliminary talks with potential investors about raising an additional round of financing. However, we’ve heard the company is shopping the deal as a convertible debt offering, as opposed to a typical late-stage equity deal, with a valuation cap of $25 billion.

Uber’s existing investors include Benchmark, Menlo Ventures, Google Ventures, TPG Growth, Kleiner Perkins, Fidelity, Wellington Management, BlackRock, Goldman Sachs, Jeff Bezos, Lowercase Capital, and First Round Capital, among others. With the financing Uber is seeking to add to that list and is pitching new investors on the deal.

For Uber, structuring its financing as convertible debt would reduce its risk of dilution, particularly as the company seeks to raise so soon after its last round. Less than six months ago, the company brought in $1.2 billion in equity financing that valued it at $18.2 billion.

Investors participating in the current financing would likely get a discount on the next round of financing. They would also benefit from a better liquidation preference in the case of an exit before Uber raised more money.

The company is already extremely well-capitalized, having raised approximately $1.6 billion to date. That’s five times the amount raised by its nearest competitor Lyft. But the new financing would only add to its Costanza wallet* as Uber seeks to enter new markets and experiment with services beyond urban ground transportation.

Uber is available in over one hundred cities in 45 countries around the world, and it’s seeking to make its mobile app for finding a ride ubiquitous in metropolitan areas. But beyond just entering new cities, the company is also trying out different categories of services.

Based on its logistics network, Uber believes that it can move more than just people, and has experimented with everything from courier services to food delivery. Uber was even tested as a delivery partner for Amazon, and there’s a real possibility it could provide the framework for on-demand delivery of goods from other third-party providers in the future.

All that is very capital-intensive, and Uber will need money to make money. Like Palantir, it’s likely Uber will try to remain private for as long as humanly possible. Having billions saved up could help with that.

We’ve also heard there’s the possibility of Uber using the financing to provide some liquidity to early investors. To date Uber has been stingy about allowing early employees and investors to cash out as its valuation has reached news heights.

Even if it does that, the company will have plenty of money left over to go after a really big transportation and delivery segment. Uber cash, even.

* Because Alexia thinks “war chest” is a cliché.